EASE-PSB Reform PDF

E Mr K U M VE E AR A K r V ER M...

E Mr K U M VE E AR A K r V ER M E RA Mr K U M V E A R VE AR A r M E R Mr UM ER E R M KU A Vr E Reference A K studyr V material for M Apromotion R exercise M R M U E E R E E R of Executives A K 2025-26 r V M A R V A R M U E E Mr K UM V E E A R A K r V A r M ER M E R M K U V E A R V E A R A r M E R R M U VE Mr K U M V E E A R A K r A r M ER M R M K U E R V EE A R R A M r V U M A E R E Mr K UM V E E A R A K rV A r M R M E R M K U V EE A R R V E A R A r M E R M U E Mr K U M V EE A R A K r V A r M ER M E R M K U V E A R V E A R A r M E R R M U VE Mr K U M V E BarodaE Academy A R A K r A r M ER M R M U E R V EE A R BankRof A KBaroda Mr V U M A E E R Mr K UM V E E A R A K r V A r M ER M E R For M internal U circulation K only V E AR V E A R A r M E R R M U VE Mr Do Not PrintKU M E E V required. Save A R A K r A unless extremely r M Paper, Save Trees E R and preserve M ER M K U Environment. V E A R V E A R A r M E R r R M U E M K UM V E E A R A K rV A is to supplement r the learning efforts M of the promotion R E aspirants. Topics M R This booklet E M K U V E A R V E incorporated are A R indicative in nature A and Apex Academy r advises the readers M to refer E R R M U E Mr to K UM SOPs,VCirculars, Book of Instructions, EE K etc. for r V Master Circulars, Policy guidelines, A R A updated information. A r M ER M This E R M K U E V the Bank (based R A on V E A R booklet is focusing mainly on the promotion A exam within r M E R R M U K and latest r VE Mr are supposedKtoUupdate M themselves previous trends) and should not be considered as an instruction manual. Employees E Eby reading Bank’s R A Vawareness related Anews. circulars, guidelines M A banking industry/ R M r other general U M E ER R EE R A K r V M A V A M U Mr U M E ER R K A K r V M A E RA E R M K U VE V E A R A r r M ER M M K U V E A R A M r U M E ER R K r V M A E RA M K U E A rV  E Mr K U M VE E AR A K r V ER M E RA Mr K U M V E A R VE AR A r M E R Mr UMAWARENESSVABOUT ER M KU V E A K r E EASE-PSB REFORM M AR AGENDA RA M r E R M K U V EE A R R V E A R A r M E R M U E Mr OVERVIEW KUM V E E A R A K r V Adecade, Public Sector r Banks (PSBs) witnessed M excessive build-up ER M Over theR M U E Much of the stressRremained hidden inAtheKform of Standard Restructured last V E Assets (SRA)Aas a R of stress in their loan E portfolio. V A granting special M r M regulatory treatment forUclassifying E R R Kof the stress r VE Mr restructured Mas standard accounts Eunder certain conditions. result of RBI guidelines issued in January 2009 1 U K impact of ther V accounts E R A became manifest. A With the recognition Multiple drivers M A since 2015, theadverse M hidden stress on key financials E R E have been R attributed by variousM wilful defaults, observers for the K Ufrauds, economic Vslowdown increase in stress, E and misconduct including, inter alia, A Rin aggressive E lending, V A lack ofrobust lending R practices, A r M E R R M U E Mr UM E K certain cases. K V E A R R A M rV To address A R M r the Government U Mimplemented a comprehensive E and Reforms EPSBs in R the problem, since 2015, has 4R’s strategy E NPAs transparently, Resolutionand K V A V R E ecosystem andAPSBs. The firstthreeRR’sAare aimed at cleaning of Recognising recovery, Recapitalising r the balance sheets M the E R financial M U of banks. E Mr The reforms are aimed K U M at systemic change V E to address root causes sothat the risk ofK Eaddress A R A recurrence of r V excessive stress is minimised. The lending, riskAmanagement, technology-driven r reforms key checks andM areas in PSBs — viz., controls and SMARTEbanking R — as well as M governance, prudential R E and accountability Min the wider financialK U V E A R V E transparency A R A ecosystem r M E R R M U VE Mr creditor-debtor K UM was altered, E K higher As a result of the 4R’s strategy, recognition of hidden stress as NPA has been largely completed, the significant recovery hasR E A r A relationship up against NPAs. rWith V this, PSB balance-sheets M A are becomingRhealthier. Through M been effected and significantly systemicR M of checks and Ucontrols, the reforms EEare creating a strong R provisions built E E improvements and institution R A K r V M A R V foundation A for CLEAN & SMART banking. R M U E E Mr As K U a part of the reforms,M in January 2018,EtheEGovernment and PSBs acommon PSB Reforms Agenda for V A R jointly committed to K A and launched r V Aacross six themes.MProgress r of PSBs against Mthe PSB ReformsEEASE Enhanced Access & Service Excellence (EASE), ERAgenda has been comprising 30 M R E tracked through R Action Points U K Index. The EASE V Reforms Index measures AR E rigorously V A A a first of its kind EASE Reforms r M E R metrics against R M U VE Mr continuous M through transparent E reporting on forward-looking K PSB performance on 140 3 respective benchmarks and offers a mechanism for U E K as the first ofr anVannual publicationsMseries improvement R A on progress made A PSB reform priorities. on EASE M r A This report is intended E R bywillPSBs ERhealthy competition reforms. Between annual M publications, quarterly updates K U The report alsoVidentifies on the EASE E areas where APSBs Reforms Index be R published E to foster V to sustainmomentum A R A and learning among PSBs. r M E R r R M U E UMTO ENABLE CLEAN need to achieve better results. M THE 4R’s STRATEGY E EAND SMART BANKING R A K rV A K r V M A R M E R Recognition M K U V EE A R R V E A R A r M E R M U E Mr NPAs recognised K M Utransparently V E E A R A K r V As a result ofA r that led to build-up Mof excessive stressEinEloan Rportfoliosof banks M since E R M the aforementioned factors K U V A R V E R FY09, by the end of FY15, total stressed assets A A were SRAs, which r of PSBs had risen M to 12.0 percent ofgross remained hidden. U E R R M VE Mr As a result of K UMsubsequent transparent advances. Out of this, 7.0 percent of gross advances E E recognition of stressedR A K r A AQR, r V M Aloans, SRAs of PSBsRdecreased from the M assets as NPA by PSBs and R lakh crore (7.0 percent M of gross advances) U by the end of FY15 EtoE R withdrawal of forbearance inasset classification ofrestructured E peak of ₹3.93 E R K V by the end of Q3FY19 r. Over the same period, A V of PSBs increased ₹0.34 lakh crore (0.5 percent of gross advances)A Afrom 5.0 percent to 13.7 M UM 4 R percent of gross advances. gross Mr NPAs U M E E R K A K r V M A E RA E Rbolstered to meet expected M losses KU VE E Provision V A R A r r M ER M M K U V E A R A M r U M E ER R K r V M A E RA M K U E A rV  E Mr K U M VE E AR A K r V ER M E RA Mr K U M V E A R VE AR A r M E R Mr UM ER M KU V E A K r VE M AR Alongside recognition, PSBs bolstered provision against NPAsto absorb potential future losses.PSBs R A Mr R M U EE have made provision of about ₹8.12 lakh crore since recognition began in FY15 till theend of Q3FY194. E K V A R R VE A R A r As a result, theProvision Coverage Ratio (PCR) of PSBs (inclusive of provisionheld against technically M E r M R written-off accounts) has registered substantial improvement, from M K U VE M U EE 46.0 percent by the end of FY15to 68.9 percent by the end of Q3FY19. K V A R RA Mr A M r U M E ER E R Reducing stress in bank loan portfolios E R K r V M A R r V stress recognition M A completed, RAsignificant resolution M under the Insolvency U E E With M Bankruptcy Code U largely E R K & V from ₹8.96 A K r VE to ₹8.64 lakhcrore (IBC) andreduced slippages, GNPAs in M Aby the end of Q3FY19. global operations of R PSBsADomestic GNPA have declined M r EE lakh crore by the end of U FY18 E R by M K V A R R ratio reduced E points in Q3FY19,R V there are indications A RAinto NPA infutureMasrwell, which coupled UM E 70 basis against RBI projection of 50 basis point YOY reduction byH1FY20 5. r M E K V E M accelerating trend Uin resolution of NPAs E R A Mr Further, of reduced slippage with the K A in future areM r V by reductionUin M A Rby 25 percent over E may be expected to sustain the declining trend in NPAs. ReducedR thatin E slippages indicated K E to June 2017 andAnearR fresh slippage in H1FY19 V R VE of the ratio M H1FY18, 47 percent reduction of A R Adowngrades on 12-month in SMA 1&2 in December r rolling basis from 2018 as compared M0.9 in E r doubling as per a leadingE credit rating upgrades R to M K U VE M H1FY17 U E credit rating agency’s Rdata A Mr 6 K to 1.7to H1FY19. A r V M A R E In order to further reduce NPAs, banks are putting in place Board committee-approved roadmaps and ER arecarrying out root cause M analyses to identify and K U address systemic E deficiencies. V A R E R r R r V M A E R A M K UM V E E M Resolution KU V E A R A r A r M R M E R M K U V EE A R R E R r V M Arecovery E RA Mr K UM V E E M U E R Mr Record growth in NPA Reforms in A K r V the insolvency and bankruptcy framework andM A E RA E R NPA resolution M K U NPA resolutionVinEIndia PSBs recovery processes within R are leading was fraughtA E to large-scale V R A and recovery. Historically, Ahas putdebtor r M with E R r challenges M due to the corporate R M Uprovided a remaining in control of its affairs. This has been addressed through E K V E M comprehensiveK U enactment of IBC, which VE for resolution M creditors in R incorporated a numberA control of the resolution process. IBC has also andA r from similarA lawsin other countries.r and time-bound framework E R of best practices M E ERthe change effected R M KU r E VPSBs A R R UMaction in creditor-debtorA r V reforms to intensify Alongside M A resolution in and R recovery from stressedM relationship through IBC, have focussed upon E E M in respect of high-value internal U stressed accounts E K accounts. In many PSBs, V A K r VEand AR branches. resided across different M R BranchesAtypicallyasdothey not Mr R higher-level approvals. havededicated M Over the past and specialised resources Uyear, under the PSB also face constraints E EASE Agenda, in timely decision-making EReforms R E have to secure R K V A R VE banks have effected a A number of 7reforms: R A M r U M E r M  All M U have EE Stressed Asset R K VE K RA Mr 21 PSBs set up dedicated Management Verticals (SAMVs) with A r V 8 M A E overallcontrol in respect of large-value NPA accounts. E  89 R percent of large-value M NPA cases stoodKU transferred to SAMVsEby December 2018, R V A as VE 90 percent ofMSMA compared to 35 AR1&2 cases wereRunder percent in March 2018. A r M E R r E M U K 2018, as V E M K Uto 15 percent in March V E2018. R monitoring by SAMVs by December A A r compared Aalso taken up time-Mbound r checking of allUNPA Mcases above ₹50Ecrore ERfrom the angle R M E PSBs have R K V A of V E to a responsible wilful default and fraud, A R credit culture. They coupled with action A have filed 9,363Msuits to expedite recovery r and registered 2,571 and deter such acts, M FIRs thereby r contributing M E R K U M against U Banks are alsoVdefining Eoutstanding Rcrore. defaulters in all K A RA wilful defaulters. step-specific time limitsfor recovery and action against R A NPA cases havingamount r M have disclosed 28,165 M above₹50 E U suit- filed casesVonE their website which is CreditE R K VE as a deterrentMagainst Information Companiesalso acting A credit default and R Aexpediting recoveryMacross r the banking system. M r U EE R K V A E RA Mr K UM r VE M AR RA M U E E A K rV  E Mr K U M VE E AR A K r V ER M E RA Mr K U M V E A R VE AR A r M E R Mr UM ER M KU V E A K r VE M AR Enabled by the change in creditor-debtor relationship and reforms in banks, PSBs have recovered R A Mr R M U EE ₹2.87 lakh crore from April 2015 till December 2018, including record recovery of ₹98,493 crore in FY19 E K V A R R VE A R A till Q3,which is 100 percent growth over the same period in the previous year. r M E r M R M K U VE M K U V EE A R RA Mr A M r U M E E ER R K r V E M A R R A RA E Recapitalisation r V M E M K U E M PSB balance-sheets U strengthened E R A r V A K r V M A R M E R recapitalisation hasM K U V EE the capital baseAR R which was depletedR Significant been initiated by the Government to strengthen of V E A Indradhanush plan A Rin August2015 to infuse r accounts as M M ₹70,000 crore overKfour U financial E E PSBs, as a result of transparent recognition of stressed NPAs. r M years. The results U The Government announced M E E R V K by theGovernment V of recapitalisation Aamounting to ₹2,11,000 RAcrore inOctober Mr 10 of AQR in December 2015 revealed higher than anticipated NPAs, necessitating A R the remaining M further announcement r M Uunder Indradhanush E Eplan and mobilisation R 2017, E E including R outlay of ₹18,139 crore ₹58,000 crore frommarkets by PSBs. The A K r V M A of R V about A2019. M U E ER VE envisaged capital infusion has since been enhanced by r M The GovernmentKhas M U infused nearly ₹2.5VE ₹41,000 crore in January R K A r M lakh crore in PSBs, from A FY15 until FebruaryR2019. E A Since FY15, Mr E PSBs have R mobilised nearly ₹66,000 M crore by raisinglakhfresh recapitalisation of ₹3.14 K Ucroreequity capital and V Ethrough monetisation R A of non-core assets. Thus, totalR VEFebruary2019 andMthe A remaining committed A r has been completed amount will take the M byM in PSBs from FY15 sum to ₹3.19 lakh croreU ER r until E R K the end V E M of FY19. KU VE and improvement R A Ain their financial performance, r A r M R Eof improvedPSBs M E R With the capital M infusion by the Government K U V E A R are E R R Mr UM expected to be better positioned to raise capital from markets as a result investor r V attractiveness, A with corresponding M RA for all shareholders. valuation gains E K V E E M U E R A K r V M A E RA Mr ReformsR E M K U VE AR V E R A banking A r M E R r M E R M K U V E M Driving CLEAN & SMART K U VandE recapitalisation,MA R A r Along withA r E R M M U recognition, resolution reforming banks comprehensively was E R K V E A R R imperative for transforming PSBs to drive CLEAN & SMART banking. E V Government introduced R A a number of system-wide A reforms as part r the 4R’s strategy.U In M E r The M E Rlarger Mof2.26 K order to V E U for deregistration M companies wereKidentified E R A Mr bring transparency and accountability in the financial system, lakh inoperative (“shell”) A r V M A Rlakh companies E and their bank accounts were frozen by the end of FY18. Theprocess E R also operationalised has continued in M National Financial FY19 with freezing of K bank U Regulatory Authority accounts of an E to regulate quality additional V 1.12 A 11 R. Eandactivities of compliance The Government V A R professionals. A r M of E R r M R M K U VE EEand deterring wilful audit M For strengthening Urisk management inVPSBs Rdefault, PSBs were A A K r M A R advised to collect E alsoFurther, Mr R M U R 12 13 E passport details of borrowers and to check wilful default in large NPA accounts. PSB E E enacted as the RFugitive Economic Offenders CEOswere empowered to request issuance of K look-out circulars. A jurisdiction of Indian The r V Government A introduced M R r V legislation, M A who remain outsideRthe Act, 2018, for effective and U M courts to avoid prosecution. deterrent action E E M With the rollout Kof U against economicoffenders E E R K A invoice-level r V A GST, a centralised V r M A which captures granularR M EEon tothethebasis GST databank was created, R Maccess better and which isUaccessible electronically R E E data along with triangulation mechanisms R K Athereby mitigatingM r V M andA of user V by borrowersMasApart of loan proposals, consent. This will enable banks to quality independent data in addition information r supplied E R K U the risk of misrepresentation M fraud. K U income-tax data, For e.g.,psbloansin59minutes.com V EGST has linked various data A Renabled A reduce the points — viz., credit score from credit A information companies, r M data, etc. and has E R banks to drastically E time takenRforin-principle approvals M for loans. K U VE V E R with initiatives forAcleaning up the system, A multiple steps haver been taken to improve PSB r Along governance. These M ER of the CMDRposition M into those of non-executive M K U E include, inter alia, bifurcation V A A M r U M E ER R K r V M A E RA M K U E A rV  E Mr K U M VE E AR A K r V ER M E RA Mr K U M V E A R VE AR A r M E R Mr UM ER M KU V E A K r VE M AR Chairman (NEC) and Managing Director (MD) & CEO; selection of NECs and Whole-Time Directors R A Mr R M U (WTDs)by the Banks Board Bureau that has a majority of non-government members, widening of the E K V EE A R R VEGovernment also R Atook multiple steps RtoAusher SMART banking, r including the creation talent poolfor selection of bank MDs and performance-based extension in the terms of office of WTDs. M of E r The M M Epayments, last-mileRaccess to banking services K U VE M infrastructuresupporting U digital bankingVE K A Aroll-out(forof e.g., Mr and online inter-Aoperable BCs / Bank rMitras, UPI, AePS, e-KYC, M e-Sign, digital E R locker), Jan- R Eplatforms for digital Dhan – Aadhaar – Mobile (JAM) M trinity, enabling Direct K U E V TReDS platform Benefit Transfers and R Aand enabling industry-wide V E digital A R lending, viz., A psbloansin59minutes.com, r M E R r UdyamiMitra.com. M E R M K U V E M K U VE A R A r A r M R M EnablingR E transformative reforms M through EASE K U Index VEE Reforms A R E R R r V recommendations(WTDs) The Whole-time DirectorsM Amadeandin PSB Manthan,Aorganised in November E R of PSBs, and Government Mr 2017,representatives UMformed including around K 250 V E E U M the basis for theKformulation EPSBReforms Agenda senior executives Rto driveEnhanced Access Excellence A of a common r V M A E RA Responsible and Service Mr E RCredit Off-take, UdyamiMitra M for MSMEs,KDeepening U (EASE) across six themes of transformation viz.,Customer Responsiveness, FinancialV E and Digitalisation A R Banking, VEDeveloping Personnel R A for Brand PSB. RA r Inclusion M E R r and M M U K through a VE M PSB Reforms EASE K EE U Agenda aims toVinstitutionalise CLEAN & A RSMART banking inAPSBs Mr Aandbenchmarked r Board Mwhich are enabled byRa comprehensive, Board- approved R strategy and quarterly M reviews, U E EReforms Index. PSB R E E independent R measurement making theA K of performance Vfor execution of Reforms through the EASE r M A R r V Towards thisMobjective, Reforms A 20 percent R EASE Agenda envisaged management accountable weight in the annual M performance appraisalUof WTDs E E Agenda. M reporting to theKbank’s U CEO has beenVearmarked E E R of the Agenda A K r V done by theA r M A for implementation R as per evaluation M EE Banks’ Association bank’s Board. E Rcommittee comprisingMselect WTDs of PSBs, K Uunder the aegis ofVIndian A R E A steering V ismonitoring theMdesign R A and implementation A rDesign and implementation M has E R r (IBA), arigorous U E R of EASE Reforms Index. M K U V E M followed process with intensive E Rexecutives. A12 nodal officer Mr involvement of senior PSB EASE Reforms Index has been finalised K V A R A RonAsthepartReforms r after extensive deliberations Mofover M in 6 steering committee U have E meetings and workshops. E E of this process, R A K 250 objective metrics r V E to track been defined M AR and analyse R r progress isVcalculated using dataA Agenda, Mconsistency. which 140 are incorporated Rin-depth in the EASE Reforms Mheldownby data, Index. The Index U cross-of E E M checking to ensureU from diverse data sources E in addition to PSBs’ R K with rigorous V VE A on EASE r data Inaddition, reviews were officials of Department A K (DFS) with WTDs r M Ain PSBs to track Rprogress M EE from these reviews Financials Services and senior executives ReformsR E Agenda and to identifyM best practices for sharing K U with other PSBs.VInputs A R E R r R RA showing whereM UM E were also included during the implementation phase. r V The Index provides allM A banks stand vis-à-visK E M andpeers on theKReforms U Agenda. The E R EIndex follows a fullyAtransparent V Mr PSBs a comparative evaluation benchmarks V R A scoring methodology, which R A M r M Uinter-bank comparisons, enablesbanks to identify precisely their strengths as well as areas for improvement. E E all PSBs are enabled Through periodic R E E track oftheir progress updates R andby providing bank-specific scorecards and K A across time.MThe V r goal is to continue A Mdriving R Vkeep A competition R U E VE to on key reform priorities r M other. As a stepKin U M E E R K Mr change by spurring healthy among PSBs and also by encouraging them to learn from each Vin future. In addition, Abank-level best practices A ER identified from thisdirection, IBA organised R A and more workshops M willbe organised r two workshops U M for sharing of best E practices among PSBs R EASEE Reforms Index have been recommended toKother PSBs. The bank-level V best practicesAare E V in the EASEMofReforms R AQ3FY19,Index chapter A r M E R r detailed E R M of this report. The EASE Reforms Index has been K U V E M period. computed as at the end K U E with FY18 V R asthe baseline to analyse progress during the A A intervening r Alaid for CLEAN banking r M ER M E FoundationR M K U V E A R E R A credit culture haveMledr to PSBs strengthening r V reforms undertaken The M Afor institutionalising clean E R K UM their M lending U increasing efficiency E exposure RlimitingThethereforms K V A RAhave also led to policies and in consortiums by number of consortium membersby way A of minimum 10 percent Rlargein place r M appraisal mechanism for Mparticipation. U that leverages 5-6 E Ediverse E E PSBs putting a robust credit R K A roles in large-value V independent data r accounts (greater V sources for (greater A than ₹50 crore) credit R appraisals. They are also M ensuring better accountability Mr crore). To deterKacts UM Ehave proactively checked by segregating appraisal, monitoring and recovery than ₹50 V of wilful default, PSBs E A R more than 650 NPA cases above A M r U M E ER R K r V M A E RA M K U E A rV  E Mr K U M VE E AR A K r V ER M E RA Mr K U M V E A R VE AR A r M E R Mr UM ER M KU V E K VE AR ₹50 crore from the angle of wilful default and have also initiated action. The reforms have also led to A r M R A Mr R M U PSBs adopting afocussed approach to NPA recovery and SMA monitoring bysetting-up dedicated E K V EE A R R VE A R A SAMVs. As of December 2018, 89 percent ofNPA and SMA 1&2 accounts weremanaged by SAMVs r M E r M R M as comparedto 30 percent at the end of Q4FY18 14. Focussed measuresundertaken to expedite recovery K U VE M U EE R have led to PSBs effecting recordrecovery of ₹98,493 crore in FY19till Q3, as compared to ₹48,497 crore K V A RA Mr A r M till Q3 in FY18. To step uprecovery from auctioning mortgaged properties of NPA cases where action M U E ER E R has been initiated under the Securitisation and Reconstruction of Financial Assets and Enforcement of E R K V Security Interest (SARFAESI) Act, 2002, IBA and PSBshave set up e-ि व य platform as a single window r M A R r V M A E RA M for information on property auctions across all PSBs. In NPA cases above ₹5 crore, cases with K U V E E M K U VE A R SARFAESI action initiated accounted for more than ₹3.8 lakh crore outstanding as on December A r A r M R M EE 2018. E R M K U V A R E R R r V SMART banking Steering M A E RA Mr K UM V E E M The reforms undertaken U for driving SMART E banking have ledAtoRimproved customerRA ‘Banking from A K r Vmobile’ M ‘Near-home banking’. ease by enabling Elanguages Mr wider setR E the comfort of home M and and channels K U It has V E increased